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I'm not very well versed in the world of banking and finance. What would banks use a blockchain for? All I can think of is a trustless clearing house. That wou

I'm not very well versed in the world of banking and finance. What would banks use a blockchain for? All I can think of is a trustless clearing house. That would make sense on one hand, but it would also divulge a lot of possibly sensitive information to the public. Other that that I know there have been a lot of hackathons about Bitcoin organised by banks but I never heard anything coming out of them.

tehlike 9y ago
You can have private ledgers.
cjbprime 9y ago
Don't underestimate the kind of things that the finance industry is bad at keeping track of :) https://www.bloomberg.com/view/articles/2017-02-17/dole-food-had-too-many-shares https://www.bloomberg.com/view/articles/2017-02-17/dole-food...
srbl 9y ago
So I can't provide a strictly bank-oriented response, but blockchain is just a distributed ledger system. I think some disservice is done in not clearly separating out the functions of blockchain from those of cryptocurrencies. You could use blockchain to manage property, contracts, microtransactions, data commerce, file storage, or certification, to name a few things. I think it's mostly a question of what can be fit into the ledger framework. Some people think that various local networks and other functionalities in the Internet of Things could be a testing ground for its broader uses (e.g., managing ownership of smart devices). Blockstack envisions it as kind of a backbone for a new Internet browsing paradigm, leveraging blockchain as a sort of DNS replacement if memory serves correctly. It's unclear if any of these ideas will take off in the near term. Going back to these blockchain applications being separate from cryptocurrencies, to me Ethereum is a step away from the coupling of the two, because it is designed with contracts in mind rather than just money. And a number of folks have signed on to developing systems that leverage Ethereum - take a look at the Enterprise Ethereum Alliance. Still I suspect that given the fact that it's unproven, the actual investment made in personnel and capital by these firms is low. Also, the ironic counterpoint to this view is that Ethereum also has ETH, a cryptocurrency. I'm an investor in ETH, but even so, I am not sure what it is worth at this point, since the value of Ethereum seems to lie not in currency but in other applications of the blockchain.
- zanny 9y ago
  Except the examples you give demonstrate two widely divergent use cases - public and private. If you are managing an internal database, you don't need proof of work. You need concurrent conflict resolution. Every major database right now has such faculties built in and you don't need to spend megawatts of power to maintain it. In the public dns replacement use case there is promise and potential, but it has the laundry list of problems you would need to solve to make it happen. I look forward to the attempts, of course, because traditional dns is a brittle top down nightmare of exploitable corruption and manipulation. But still, blockchains as they are are only useful when you don't trust participants. And for along large-scale application, making that claim puts you in a political position - either you trust or distrust the governments oversight of whatever you are trying to reach consensus on. While a lot of people will, at inquiry, say they don't trust the government, very few people are willing to put the effort into forging an alternative public trust framework for things like property rights or certification that you mentioned.
  - srbl 9y ago
    I agree with you that the public use case makes more sense than the private one, though really I feel that it's not about "public" or "private" but rather about different sides in some market, whether it is public or private. But I'm not sure I understand, were any of those use cases "private?" When I mentioned "manage property, contracts, microtransactions, data commerce, file storage, or certification, to name a few things", I think pretty much all of those besides file storage (on which I'd defer to Blockstack) represent agreements or exchanges between different sides in a market or platform.
dismantlethesun 9y ago
Having a block chain doesn't mean that you have to give access worldwide to anyone and everyone. Banks could provide blockchain access to only computers that cleared their firewall, and are API authorized. Think ach except with a black chain as th back end.
- runeks 9y ago
  Why would parties that trust each other, and don't let anyone untrusted in, have a need for trustless consensus?
  - monocasa 9y ago
    Because despite the fact that they trust each other more than any random shmuck, they don't completely trust eachother?
  - paulrd 9y ago
    Trust isn't a binary relationship. Computer security is hard. I trust people to try their best to not get hacked or not to get kidnapped and tortured, but alas it sometimes happens. I'm surprised no-one has mentioned that the only reason to use a block chain is to achieve byzantine fault tolerance. Casper is trying to solve much the same thing that has already been solved by Tendermint but with different trade-offs (CAP theorem trade-offs).
  - dismantlethesun 9y ago
    Well banks don't necessarily trust their international partners for example totally. Smaller banks fo instance have a lot of trouble sending unsecured wires. With the block chain it would be possible to have more trust on the amount of funds another bank has available.
runeks 9y ago
> I'm not very well versed in the world of banking and finance. What would banks use a blockchain for? Nothing, in my opinion. The value of a blockchain stems from the fact that, combined with proof-of-work, a single history of transactions can be agreed upon without a central party. This is the same feature that prevents alteration of history, because it would require recalculating the proof-of-work. This comes at a very high cost, however, since energy is literally burnt off just to reach this distributed consensus. Therefore, it only makes sense for the utmost valuable applications, like digital money. I mean, right now Bitcoin miners are paid over a million USD per day in order for the network to reach distributed consensus. Please, anyone, let me know which kinds of applications can bear even a tiny fraction of this cost, except digital money. Even at 1% of this cost, a blockchain-based clearing protocol would be both more expensive and orders of magnitudes slower than using a central party -- and the purpose of clearing is to increase efficiency/reduce costs in the first place. Banks are in the business of taking in deposits and lending them out, while taking a cut. Trustless lending makes no sense; you need to trust whoever you lend money to, or you'll be lending a lot of money to gambling addicts, with little chance of repayment.
- highd 9y ago
  Proof-of-Stake will be released on Ethereum soon and will greatly reduce the mining overhead, FYI.
  - iamphilrae 9y ago
    Actually, if you read one of their blog posts from the last few weeks, they've pretty much abandoned it because it's too hard a problem to solve. Sorry I can't cite, on a mobile and in a rush.
    - djrtwo 9y ago
      I spend a lot of time in the ethereum proof of stake gitter and I can confirm that this is false. It's actively being researched and still in the roadmap. A hybrid PoS/PoW model will likely come out first.
    - 9y ago
Roritharr 9y ago
I recently read an Interview with the CEO of one of Germany's biggest travelling agencies, TUI[1]. In it, he described selling the "hotelbeds" database service for 1.19bn€ because in the future information about hotelbed vacancies would be stored in a public blockchain, not in centralised closed data silos. He described this as a democratization of data, a counter model compared to how Facebook and Google currently hoard data without giving anyone else access to it. To me it didn't make sense, because who would participate in such a blockchain? Who is the miner? Why? Where is the trustless concensus feature needed? Maybe someone more knowledgeable can explain what he meant. [1] https://www.welt.de/wirtschaft/article164874973/Die-Internet-Giganten-verlieren-ihre-Datenmonopole.html https://www.welt.de/wirtschaft/article164874973/Die-Internet...
- terhechte 9y ago
  There's quite a lot of data out there which is shared by multiple companies with easy (or sometimes complicated) sync mechanisms where the actual money is not in the data but in the services that can produce this data. Hotelbeds is one example: - Hotels want to have their information on as many sites as possible - When travel site A blocks / books a room, travel site B and C need to update their databases quickly - The money is not in the database, as those are effectively just data caches of the information that the hotels will happily provide free of charge - The data is already shared between hotel sites, just that every site has their own data silo. - Money is made through individual contracts, upsell, services or better UI to access the shared data Another example of this is, of course flight information. So why would a company move this data onto a blockchain. We can take Ethereum as an example. Note that some of the things I describe here are presently not possible with Ethereum but will be possible within the next couple of software updates (I imagine within the next 1-2 years). Ethereum offers an existing, working, generalized blockchain with existing miners. Sure, a company could try to roll its own blockchain, but, as you observed, who would want to mine that. Also, there's little to gain by taking a private database and making it a semi-private blockchain. Ethereum incentives the miners with Ether to continue to secure the data and keep the consensus. The Hotelbeds database could become a database on top of Ethereum and the access would be regulated via a smart contract. That smart contract could be used to mark an individual room as booked (or reserved) for a certain time range. This means that each booking would cost a small amount of gas to pay for the transaction. Ethereum strives for a sub-second block time, which means that the database transaction could be almost instantaneous (compared to, say, Bitcoin, where currently transactions sometimes need to wait 3-4 hours). In comparison to the booking cost of the room, this small transaction / gas fee would be negligible (I hope). Since all Hotelbed sites would use this same contract / blockchain, there'd be no syncing required, as all changes would be available to all clients the second they happen. Even better, the smart contract could contain basic logic to defend invalid requests without ever alerting the clients (booking invalid dates, etc). A different, but related dataset (say car bookings) could also be hosted on the blockchain and could be queried at the same time to provide additional services ("there's one free car to rent for your hotel in that timeframe"). Alternatively, of course, all hotel sites could just get their data from one database company that sells access to the data and takes care of an internal database of all hotel bookings (i.e. Google). However, then, you're dependent on a different vendor. He may change his prices, he may limit the data, he may start giving certain hotels only to premium clients (see net neutrality). Even worse, at some point he may stop serving the data because it is not economically feasible (see Google Reader, or Facebook Parse). With Ethereum, there's nobody who officially owns the database. It can also never be taken offline again (at least until the last miner stops running his Ethereum node). This doesn't work for data sets where the value lies in the data itself, but for data which is already replicated across multiple databases anyway, this is a great alternative solution to have a truly global, synced, database that is owned by nobody, where nobody gatekeeper, and where the entrance barrier is low. I.e. it wouldn't make sense for Facebook (obviously) or Gmail, but for a truly decentralised Twitter (nee Diaspora) or Weather Information, etc.
SkyMarshal 9y ago
This article explains the general thinking behind it: https://gendal.me/2015/04/27/how-to-explain-the-value-of-replicated-shared-ledgers-from-first-principles/ https://gendal.me/2015/04/27/how-to-explain-the-value-of-rep...
pmorici 9y ago
Read up on how international banking and specifically correspondent banking works[0]. There is a lot of counter party risk for banks in that process. Bitcoin or something like it would allow a system to be built that eliminated a lot of that counter party risk. [0] https://gendal.me/2013/11/24/a-simple-explanation-of-how-money-moves-around-the-banking-system/ https://gendal.me/2013/11/24/a-simple-explanation-of-how-mon...
rampage101 9y ago
The crypto-currency Ripple is meant to replace the SWIFT banking system. Right now, transfers between banks are relatively expensive, think for example about a $25 Wire transfer fee. Ripple would make it so these transactions between banks costs only a few cents, and can be verified easier. That being said, I am not a fan of investing in Ripple because they have no private wallets, and they have stolen from customers because of KYC/AML (Know your customer/Anti-Money Laundering).
Lazare 9y ago
A lot of the financial system is built on legacy systems that don't work very well, don't interoperate very well, and don't really have the capacity to handle what's demanded of them. Hence why a lot of very simple things takes days when they should take seconds, or cost several dollars when they should cost fractions of a penny: Stuff like transferring money between accounts, registering a change in ownership of financial assets, etc. Generally speaking the situation is something like "there's a central organisation that everyone trusts, they run a central ledger, but it's slow and limited; we need to upgrade it." However, spending millions and millions of dollars to make a better system for recording payments, or changes in land title, or whatever is a hard sell. It's an extremely boring problem that's been solved ages ago, and now someone needs to actually go and build it, but nobody wants to fund it, and nobody wants to work on it. A blockchain, on the other hand, is cool. People want to talk about them, people want to work on them, and you can get funding. Of course, it's totally unsuited to solving any problems banks actually face, but that's neither here nor there. :)
ChemicalWarfare 9y ago
Private inter-bank blockchain can be used instead of the archaic system that the banks use today (this is basically what Ripple is doing). Internally (as in completely private intra-bank blockchain) - for transaction tracking/mining etc.
spangry 9y ago
It's not so much banks using blockchain. It's more blockchain being the new 'magic beans' that Deloitte, Accenture and their ilk can sell to clueless (but 'agile'!) executives.
Temasik 9y ago
Look at ripple xrp

tehlike 9y ago

You can have private ledgers.

cjbprime 9y ago

Don't underestimate the kind of things that the finance industry is bad at keeping track of :) https://www.bloomberg.com/view/articles/2017-02-17/dole-food-had-too-many-shares https://www.bloomberg.com/view/articles/2017-02-17/dole-food...

srbl 9y ago

So I can't provide a strictly bank-oriented response, but blockchain is just a distributed ledger system. I think some disservice is done in not clearly separating out the functions of blockchain from those of cryptocurrencies. You could use blockchain to manage property, contracts, microtransactions, data commerce, file storage, or certification, to name a few things. I think it's mostly a question of what can be fit into the ledger framework. Some people think that various local networks and other functionalities in the Internet of Things could be a testing ground for its broader uses (e.g., managing ownership of smart devices). Blockstack envisions it as kind of a backbone for a new Internet browsing paradigm, leveraging blockchain as a sort of DNS replacement if memory serves correctly. It's unclear if any of these ideas will take off in the near term. Going back to these blockchain applications being separate from cryptocurrencies, to me Ethereum is a step away from the coupling of the two, because it is designed with contracts in mind rather than just money. And a number of folks have signed on to developing systems that leverage Ethereum - take a look at the Enterprise Ethereum Alliance. Still I suspect that given the fact that it's unproven, the actual investment made in personnel and capital by these firms is low. Also, the ironic counterpoint to this view is that Ethereum also has ETH, a cryptocurrency. I'm an investor in ETH, but even so, I am not sure what it is worth at this point, since the value of Ethereum seems to lie not in currency but in other applications of the blockchain.

zanny 9y ago
Except the examples you give demonstrate two widely divergent use cases - public and private. If you are managing an internal database, you don't need proof of work. You need concurrent conflict resolution. Every major database right now has such faculties built in and you don't need to spend megawatts of power to maintain it. In the public dns replacement use case there is promise and potential, but it has the laundry list of problems you would need to solve to make it happen. I look forward to the attempts, of course, because traditional dns is a brittle top down nightmare of exploitable corruption and manipulation. But still, blockchains as they are are only useful when you don't trust participants. And for along large-scale application, making that claim puts you in a political position - either you trust or distrust the governments oversight of whatever you are trying to reach consensus on. While a lot of people will, at inquiry, say they don't trust the government, very few people are willing to put the effort into forging an alternative public trust framework for things like property rights or certification that you mentioned.
- srbl 9y ago
  I agree with you that the public use case makes more sense than the private one, though really I feel that it's not about "public" or "private" but rather about different sides in some market, whether it is public or private. But I'm not sure I understand, were any of those use cases "private?" When I mentioned "manage property, contracts, microtransactions, data commerce, file storage, or certification, to name a few things", I think pretty much all of those besides file storage (on which I'd defer to Blockstack) represent agreements or exchanges between different sides in a market or platform.

dismantlethesun 9y ago

Having a block chain doesn't mean that you have to give access worldwide to anyone and everyone. Banks could provide blockchain access to only computers that cleared their firewall, and are API authorized. Think ach except with a black chain as th back end.

runeks 9y ago
Why would parties that trust each other, and don't let anyone untrusted in, have a need for trustless consensus?
- monocasa 9y ago
  Because despite the fact that they trust each other more than any random shmuck, they don't completely trust eachother?
- paulrd 9y ago
  Trust isn't a binary relationship. Computer security is hard. I trust people to try their best to not get hacked or not to get kidnapped and tortured, but alas it sometimes happens. I'm surprised no-one has mentioned that the only reason to use a block chain is to achieve byzantine fault tolerance. Casper is trying to solve much the same thing that has already been solved by Tendermint but with different trade-offs (CAP theorem trade-offs).
- dismantlethesun 9y ago
  Well banks don't necessarily trust their international partners for example totally. Smaller banks fo instance have a lot of trouble sending unsecured wires. With the block chain it would be possible to have more trust on the amount of funds another bank has available.

runeks 9y ago

> I'm not very well versed in the world of banking and finance. What would banks use a blockchain for? Nothing, in my opinion. The value of a blockchain stems from the fact that, combined with proof-of-work, a single history of transactions can be agreed upon without a central party. This is the same feature that prevents alteration of history, because it would require recalculating the proof-of-work. This comes at a very high cost, however, since energy is literally burnt off just to reach this distributed consensus. Therefore, it only makes sense for the utmost valuable applications, like digital money. I mean, right now Bitcoin miners are paid over a million USD per day in order for the network to reach distributed consensus. Please, anyone, let me know which kinds of applications can bear even a tiny fraction of this cost, except digital money. Even at 1% of this cost, a blockchain-based clearing protocol would be both more expensive and orders of magnitudes slower than using a central party -- and the purpose of clearing is to increase efficiency/reduce costs in the first place. Banks are in the business of taking in deposits and lending them out, while taking a cut. Trustless lending makes no sense; you need to trust whoever you lend money to, or you'll be lending a lot of money to gambling addicts, with little chance of repayment.

highd 9y ago
Proof-of-Stake will be released on Ethereum soon and will greatly reduce the mining overhead, FYI.
- iamphilrae 9y ago
  Actually, if you read one of their blog posts from the last few weeks, they've pretty much abandoned it because it's too hard a problem to solve. Sorry I can't cite, on a mobile and in a rush.
  - djrtwo 9y ago
    I spend a lot of time in the ethereum proof of stake gitter and I can confirm that this is false. It's actively being researched and still in the roadmap. A hybrid PoS/PoW model will likely come out first.
  - 9y ago

Roritharr 9y ago

I recently read an Interview with the CEO of one of Germany's biggest travelling agencies, TUI[1]. In it, he described selling the "hotelbeds" database service for 1.19bn€ because in the future information about hotelbed vacancies would be stored in a public blockchain, not in centralised closed data silos. He described this as a democratization of data, a counter model compared to how Facebook and Google currently hoard data without giving anyone else access to it. To me it didn't make sense, because who would participate in such a blockchain? Who is the miner? Why? Where is the trustless concensus feature needed? Maybe someone more knowledgeable can explain what he meant. [1] https://www.welt.de/wirtschaft/article164874973/Die-Internet-Giganten-verlieren-ihre-Datenmonopole.html https://www.welt.de/wirtschaft/article164874973/Die-Internet...

terhechte 9y ago
There's quite a lot of data out there which is shared by multiple companies with easy (or sometimes complicated) sync mechanisms where the actual money is not in the data but in the services that can produce this data. Hotelbeds is one example: - Hotels want to have their information on as many sites as possible - When travel site A blocks / books a room, travel site B and C need to update their databases quickly - The money is not in the database, as those are effectively just data caches of the information that the hotels will happily provide free of charge - The data is already shared between hotel sites, just that every site has their own data silo. - Money is made through individual contracts, upsell, services or better UI to access the shared data Another example of this is, of course flight information. So why would a company move this data onto a blockchain. We can take Ethereum as an example. Note that some of the things I describe here are presently not possible with Ethereum but will be possible within the next couple of software updates (I imagine within the next 1-2 years). Ethereum offers an existing, working, generalized blockchain with existing miners. Sure, a company could try to roll its own blockchain, but, as you observed, who would want to mine that. Also, there's little to gain by taking a private database and making it a semi-private blockchain. Ethereum incentives the miners with Ether to continue to secure the data and keep the consensus. The Hotelbeds database could become a database on top of Ethereum and the access would be regulated via a smart contract. That smart contract could be used to mark an individual room as booked (or reserved) for a certain time range. This means that each booking would cost a small amount of gas to pay for the transaction. Ethereum strives for a sub-second block time, which means that the database transaction could be almost instantaneous (compared to, say, Bitcoin, where currently transactions sometimes need to wait 3-4 hours). In comparison to the booking cost of the room, this small transaction / gas fee would be negligible (I hope). Since all Hotelbed sites would use this same contract / blockchain, there'd be no syncing required, as all changes would be available to all clients the second they happen. Even better, the smart contract could contain basic logic to defend invalid requests without ever alerting the clients (booking invalid dates, etc). A different, but related dataset (say car bookings) could also be hosted on the blockchain and could be queried at the same time to provide additional services ("there's one free car to rent for your hotel in that timeframe"). Alternatively, of course, all hotel sites could just get their data from one database company that sells access to the data and takes care of an internal database of all hotel bookings (i.e. Google). However, then, you're dependent on a different vendor. He may change his prices, he may limit the data, he may start giving certain hotels only to premium clients (see net neutrality). Even worse, at some point he may stop serving the data because it is not economically feasible (see Google Reader, or Facebook Parse). With Ethereum, there's nobody who officially owns the database. It can also never be taken offline again (at least until the last miner stops running his Ethereum node). This doesn't work for data sets where the value lies in the data itself, but for data which is already replicated across multiple databases anyway, this is a great alternative solution to have a truly global, synced, database that is owned by nobody, where nobody gatekeeper, and where the entrance barrier is low. I.e. it wouldn't make sense for Facebook (obviously) or Gmail, but for a truly decentralised Twitter (nee Diaspora) or Weather Information, etc.

SkyMarshal 9y ago

This article explains the general thinking behind it: https://gendal.me/2015/04/27/how-to-explain-the-value-of-replicated-shared-ledgers-from-first-principles/ https://gendal.me/2015/04/27/how-to-explain-the-value-of-rep...

pmorici 9y ago

Read up on how international banking and specifically correspondent banking works[0]. There is a lot of counter party risk for banks in that process. Bitcoin or something like it would allow a system to be built that eliminated a lot of that counter party risk. [0] https://gendal.me/2013/11/24/a-simple-explanation-of-how-money-moves-around-the-banking-system/ https://gendal.me/2013/11/24/a-simple-explanation-of-how-mon...

rampage101 9y ago

The crypto-currency Ripple is meant to replace the SWIFT banking system. Right now, transfers between banks are relatively expensive, think for example about a $25 Wire transfer fee. Ripple would make it so these transactions between banks costs only a few cents, and can be verified easier. That being said, I am not a fan of investing in Ripple because they have no private wallets, and they have stolen from customers because of KYC/AML (Know your customer/Anti-Money Laundering).

Lazare 9y ago

A lot of the financial system is built on legacy systems that don't work very well, don't interoperate very well, and don't really have the capacity to handle what's demanded of them. Hence why a lot of very simple things takes days when they should take seconds, or cost several dollars when they should cost fractions of a penny: Stuff like transferring money between accounts, registering a change in ownership of financial assets, etc. Generally speaking the situation is something like "there's a central organisation that everyone trusts, they run a central ledger, but it's slow and limited; we need to upgrade it." However, spending millions and millions of dollars to make a better system for recording payments, or changes in land title, or whatever is a hard sell. It's an extremely boring problem that's been solved ages ago, and now someone needs to actually go and build it, but nobody wants to fund it, and nobody wants to work on it. A blockchain, on the other hand, is cool. People want to talk about them, people want to work on them, and you can get funding. Of course, it's totally unsuited to solving any problems banks actually face, but that's neither here nor there. :)

ChemicalWarfare 9y ago

Private inter-bank blockchain can be used instead of the archaic system that the banks use today (this is basically what Ripple is doing). Internally (as in completely private intra-bank blockchain) - for transaction tracking/mining etc.

spangry 9y ago

It's not so much banks using blockchain. It's more blockchain being the new 'magic beans' that Deloitte, Accenture and their ilk can sell to clueless (but 'agile'!) executives.

Temasik 9y ago

Look at ripple xrp